A Painless Way to Wind Down a Business
Some entrepreneurs thrive on the excitement of taking financial risks, but the most successful ones understand that life is not a game of Monopoly and that knowing when to walk away from a business venture that is not going to become profitable is an essential part of the picture. Many of the founders of today’s most successful companies previously also founded other companies that are no longer in operation.
Winding down a business is as much work and as much stress as making increasingly desperate attempts to make it profitable. Once you announce your intentions to close the business, the shareholders are angry, and so are the creditors. Some business owners choose to wind down their businesses through the process of Assignment for the Benefit of Creditors (ABC), which is similar to filing for bankruptcy except without all the legal red tape. To find out more about ABC and other strategies for reducing the financial and emotional pressure of closing a business, contact a California business law attorney.
Assignment for the Benefit of Creditors Helps Insolvent Businesses Avoid Litigation
All individuals and businesses have the right to file for bankruptcy protection if they cannot pay their debts. In a Chapter 7 bankruptcy case, the court has the right to liquidate your assets in order to settle your debts. When a business files for Chapter 7 bankruptcy, it ceases to exist once the bankruptcy case is complete; other bankruptcy categories are available for businesses that want to discharge eligible debts but continue operating. Debts owed to secured creditors get priority over debts owed to unsecured creditors. All bankruptcy cases are under the jurisdiction of the federal courts.
In ABC, you sign over the business assets to a third-party company, known as the assignee, and your business ceases to exist. Before you sign the assignment agreement with the assignee, you must get permission from the board of directors of your company, as well as the shareholders. Once you sign the agreement and the business assets are in the possession of the assignee, it liquidates the assets and uses them to settle debts with your creditors, following the same order of priority that the bankruptcy courts use in Chapter 7 cases.
ABC is a simpler way of dissolving your business and settling your debts than filing for Chapter 7 bankruptcy. Instead of going through the federal courts, you work directly with the assignee. It is like finalizing your divorce through mediation instead of at trial. In fact, cost and time are just part of the reason that any insolvent companies choose ABC instead of bankruptcy. They also want to avoid the negative publicity that comes with filing for bankruptcy in federal court.
Contact SNR Law Group About Winding Down an Insolvent Business
If you are considering your legal options surrounding dissolving a business and the wind down process, please contact an experienced attorney. SNR Law Group can work with you to answer your questions and discuss your options.
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